A semi-biased commentary on British and American politics, culture and current affairs

Michael Lind

In a wide-ranging essay, Michael Lind argues that the elite managerial class have broken their compact with the working classes to the detriment of the country, thus explaining the populist backlashes witnessed in Britain and America

“The New Class War”, an essay in the American Affairs Journal by writer Michael Lind, perfectly captures the intersection between trade regulation, democracy and the interests of the managerial elites which is at the heart of the current debate over sovereignty – and which fuelled the Brexit vote in the UK and Donald Trump’s ascendancy to the presidency in America.

It is necessary to quote at some length from the section entitled “The Politics of Global Arbitrage“, in which Lind discusses the ways in which corporate behaviour has influenced the contours of our democracy:

Even as they have exploited opportunities for international labor and tax-and-subsidy arbitrage, firms in the post–Cold War era of globalization have promoted selective harmonization of laws and rules, when it has been in their interest to do so. In the second half of the twentieth century, successive rounds of negotiation under the auspices of the General Agreement on Tariffs and Trade (GATT) and, more recently, the World Trade Organization (WTO) effectively reduced most traditional tariff barriers. By 2016, when the WTO effectively terminated the failed Doha Development Round of global trade talks, the United States and other leading industrial nations had shifted the emphasis from removing barriers restricting the cross-border flow of goods to harmonizing laws and regulations through “multiregional trade pacts” like the North American Free Trade Agreement (NAFTA), the Trans-Pacific Partnership (TPP), and the Transatlantic Trade and Investment Partnership (TTIP), in the interests of transnational investors and corporations reliant on transnational supply chains.

The areas chosen for arbitrage and harmonization reflect the interests not of national working-class majorities but of the managerial elites that dominate western governments. Harmonizing labor standards or wages would undercut the labor arbitrage strategy, while transnational crackdowns on tax avoidance would thwart the strategy of tax arbitrage by transnational firms. Instead, the emphasis in harmonization policy has been on common industrial standards, the liberalization of financial systems, and intellectual property rights, including pharmaceutical patents. These kinds of harmonization benefit transnational firms, investors on Wall Street or in the City of London, and the holders of intellectual property rights in Silicon Valley and the pharmaceutical industry.

In many cases, this kind of regulatory harmonization makes sense—standardizing product safety measures, for example. But the new regulatory harmonization agreements produce a “democratic deficit” in two ways.

First, they remove whole areas of regulation from the realm of ordinary legislation, replacing it with “legislation by treaty.” Favorable laws and regulations that corporate lobbyists are unable to persuade national democratic legislatures to enact can be repackaged and hidden in harmonization agreements masked as “trade” treaties. These treaties, often thousands of pages long, tend to be drafted in secret by committees involving corporate lobbyists and may be ratified by legislatures without careful scrutiny.

Worse, most of these contemporary regulatory harmonization agreements include “investor-state dispute settlement” (ISDS) provisions that allow individual corporations to sue national governments that change the rules in their countries after the passage of the treaty in private tribunals, dominated by corporate lawyers, with no appeal mechanism. If Congress enacts a statute that adversely affects the interests of Acme Inc., then Acme has few options, other than paying lobbyists and making campaign donations. But if Congress ratifies a treaty, and later changes a provision by passing a new law, Acme can sue the federal government for financial damages. The United States has yet to lose a case to ISDS, but other countries have, and some believe that the prospect of corporate lawsuits has a chilling effect on new laws and regulations of which particular corporations disapprove.

None of this is to imply that the transnational managers of the West and littoral East Asia who control the new global oligopolies are more selfish or less public-spirited than the managers of national corporations during the Second Industrial Era. On the contrary, in personal terms, today’s managerial elite is for the most part less bigoted and often quite philanthropic. The point is simply that the American, German, and Japanese corporations of half a century ago were constrained by kinds of Galbraithian countervailing power and Burnhamite/Moscian juridical defenses that have crumbled. Thanks to globalization, itself a voluntary policy choice enabled but not required by new technology, today’s transnational firms have much more bargaining power in their dealings with workers and democratic nation-states.

My emphasis in bold.

This perfectly sums up a core part of the democratic case for leaving the European Union as it relates to trade, and is very much in line with the analysis and arguments advanced by Dr. Richard North of eureferendum.com and Pete North.

Lind is quite correct to acknowledge that regulatory harmonisation can be an enormous force for good. In fact, the trouble only really comes about when there is no option for a democratic nation state to “opt out” of a certain regulatory change or edict when its imposition would harm the national interest in some way. Obviously there would be consequences for such an action, such as the non-recognition of standards relating to the product or industry in question. But the opt-out is a vital tool which nation states must possess in order to wield sensibly and with restraint on those occasions when the compromise hashed out by 27 EU member states is unacceptable to the sole outvoted dissenting country.

This is what we mean by the outsourcing of sovereignty. Remainers and assorted pro-EU apologists love to make the glib assertion that EU member states retain ultimate sovereignty at all times because they are technically free to leave the EU, but this is an asinine assertion. Sovereignty should not be a choice between having to go along with every diktat from Brussels or deploying the nuclear option and leaving the European Union. Indeed, how can you call it sovereignty when the choice is between accepting papercut after papercut (grave though the cumulative wound may be) or else enduring the disruption of severing ourselves from the union? This isn’t sovereignty, it is blackmail. Thank goodness that Britain finally called the EU’s bluff.

This section is also instructive:

To obtain social peace and mobilize national populations during World War II, the United States and its allies like Britain brokered business-labor pacts and promised welfare benefits to veterans. In the ensuing Cold War, every major industrial democracy devised some kind of “settlement” or compromise among business and labor interests within the nation.

The postwar settlements were a combination of employer-specific welfare capitalism and universal or means-tested, social-democratic welfare states. In West Germany, welfare capitalism took the form of “codetermination,” or union membership on corporate boards. Japan, following intense labor conflict after 1945, developed a system of corporate paternalism and lifetime employment for many workers. Organized labor was weak in the postwar United States, but the “Treaty of Detroit” negotiated among automobile companies and unions was a successful example of informal business-labor corporatism. Low levels of legal and illegal immigration, and social pressure on married mothers to exit the work force to become homemakers, strengthened the bargaining power of mostly male workers by creating tight labor markets.

These corporatist systems of welfare capitalism made the welfare states of the period from the 1940s to the 1970s much smaller than they would have been otherwise. Wage compression brought about by unions in the welfare-capitalist system made it easier for payroll taxes to fund entitlements like public pensions, which in turn were smaller than they might have been because of the widespread existence of private employer pensions.

The post-1945 settlements in the West and Japan demonstrate countervailing power and juridical defense in action. The result was the golden age of capitalism from the 1940s to the 1970s, combining high growth with a more equal distribution of its rewards than has ever existed before or since.

But Lind sees the end of the Cold War as a turning point when the post-war settlements established in the West and Japan began to be fatally undermined:

Following the Cold War, the global business revolution shattered these social compacts. Through the empowerment of multinational corporations and the creation of transnational supply chains, managerial elites disempowered national labor and national governments and transferred political power from national legislatures to executive agencies, transnational bureaucracies, and treaty organizations.

Freed from older constraints, the managerial minorities of Western nations have predictably run amok, using their near-monopoly of power and influence in all sectors—private, public, and nonprofit—to enact policies that advantage their members to the detriment of their fellow citizens. Derided and disempowered, large elements of the native working classes in Western democracies have turned to charismatic tribunes of anti-system populism in electoral rebellions against the selfishness and arrogance of managerial elites.

I have to say that Lind’s essay has given me pause for thought. This blog has consistently championed the Thatcherite revolution which took Britain from being the sick man of 1970s Europe, seemingly in terminal decline, to a revived and confident global power by the 1990s. I did so while acknowledging the various failures of the Thatcher government to ameliorate the decline of heavy industry outside of the wealthy Southeast and its cost in terms of suffering and wasted human potential, but I nonetheless saw (and continue to see) Thatcherism as a necessary if painful tonic for the economically sick Britain of the 1970s.

Lind, however, sees things differently. From Lind’s perspective, the post World War II settlements established between labour and the managerial classes in various Western countries were responsible for the great boost in productivity and living standards, not an anchor on these metrics (as I have always viewed the post-war settlement in Britain, partially deconstructed by Thatcher). To be fair, Lind pinpoints the start of the unravelling to the end of the Cold War when Thatcher’s premiership was nearing an end, but since many of the tenets of Thatcherism continued through the Major and Blair governments into the 21st century once can reasonably infer a criticism of Thatcher’s policies, which merely took a decade to come to full fruition.

This is food for thought for an unabashed Thatcherite like me, and I need to do more reading to decide how much of Lind’s narrative holds water. The narrative arc he constructs is persuasively argued and passes the “common sense” test, but to my mind Britain’s experience stands as an exception to Lind’s rule. In our case, the post-war settlement we constructed (based on the recommendations of the Beveridge Report) grievously held us back as a country. We did not benefit from enlightened German-style corporate governance or Japanese-style jobs for life in the post-war years, but rather sank into decades of adversarial conflict between unions and (largely state-owned) employers, with government policy repeatedly favouring the interests of the producer over those of the consumer.

Now, this could be because British government policy was particularly misguided and the British managerial class particularly useless (an argument I have some sympathy with), but it seems more likely to me that Lind’s blanket assertion that countries prosper most when there is a powerful countervailing force to push back against the elite managerial class is not always correct – or at least is only one of several other key factors determining economic growth and increases in standard of living. I would posit that Thatcher’s Methodist upbringing probably provided a great moral anchor that prevented excessive self-serving policymaking, while today’s decadent and avowedly secular elites are perhaps more prone to corruption and in greater need of the countervailing force that Lind describes (hence the populist backlashes we have witnessed).

Lind then goes on to discuss how labour arbitrage and tax & subsidy arbitrage in our more globalised world have worked to undermine the nation state and empower the corporation – a line of reasoning which would certainly be familiar to anyone on the Left.

He concludes by looking ahead to the likely geopolitical situation in the year 2050, and considers what will be the best strategy for the West to maintain power and influence:

Great-power competition, even in the form of limited cold wars, is likely to reward nations whose economic model is based on developing productive technology and raising the incomes of domestic worker-consumers, rather than engaging in labor and tax arbitrage, regulatory harmonization, and other schemes that boost profits without increasing productivity. In cold wars and trade wars, even if no blood is shed by the contenders, countries and blocs with empowered and patriotic workers are likely to do better than rival nations crippled by immiserated workforces and selfish, nepotistic, oligarchic elites.

[..]

Managerial elites are bound to dominate the economy and society of every modern nation. But if they are not checked, they will overreach and produce a populist backlash in proportion to their excess. By a misguided policy of suppressing wages and thus throttling mass consumption, unchecked managerial elites may inadvertently cripple the technology-driven productivity growth responsible for their rise and accidentally cause the replacement of managerial society itself by a kind of high-tech rentier feudalism.

Managerial society works best when there are not only concessions to national working-class economic interests—the bribes to the “losers” of neoliberalism—but also genuine economic bargaining power and political power wielded by the many. Far from undermining managerial regimes, Burnham’s “juridical check” and Galbraith’s “countervailing power” make them more legitimate and sustainable.

In other words, the policies favoured by the current dispossessed centrists in Britain and America are not as smart and self-evidently beneficial as their advocates love to claim. Status quo globalisation, which increasingly seeks to leverage labour arbitrage, tax arbitrage and selective regulatory harmonisation to benefit the managerial class while doing little to raise productivity (not to mention leaving millions of people in dead-end jobs or the unemployment scrapheap) is not only selfish on the part of the managerial class, it is also injurious to the future prosperity and security of the country.

In fact, according to Lind, it turns out that having a patriotic population and workers with a commitment to the country they live in, together with some degree of bargaining power (preferably due to their possessing valuable skills rather than the threat of withholding their labour, as deployed in the 1970s), is perhaps a net positive after all, particularly in the long term.

Again: I don’t buy everything in Michael Lind’s essay. But he spins a plausible narrative and argues his case well. And if Lind is correct, how regrettable is it, then, that the populist backlashes on both sides of the Atlantic have been held in check partly through their own incompetence (Donald Trump in America and the Tory hard Brexiteers in the UK) and partly by the fact that the resurgent centrists have effectively ground the respective movements to a halt?

Bear in mind, if and when the centrists retake power, they intend to revert to pure business as usual. They have learned nothing from the comprehensive rejection they received from voters only a short time ago, and think that the world can revert to its previous happy state where they got everything that they wanted while anyone who dissented could go jump off a bridge.

I have long contended that such an overturning of these populist movements by the elite would be poisonous, even fatal, to our democracy. But if Lind is correct, it could also be fatal to the future economic prosperity and national security of our countries.

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The global, liberal elite are increasingly transcending any lingering commitment to patriotism and national identity, setting them on a collision course with the small-c conservative majority

Michael Lind has an unmissable essay in the National Review this week, entitled “The Open-Borders ‘Liberaltarianism’ of the New Urban Elite“, which manages to explain so much about the rise of Donald Trump and the growing inability of political elites in America and Britain to speak to whole swathes of the country they supposedly control.

The crux of Lind’s argument seems to be that the educated, liberal (to use American parlance) inhabitants of the large cities have increasingly taken on what were always fringe libertarian ideas about open borders and the irrelevance or undesirability of the nation state, leading them to pursue policies and espouse values which alienate the more suburban and rural population.

Key quote:

To date, the public conversation on both sides of the Atlantic has been dominated almost entirely by the elite inhabitants of Densitaria, interrupted only by occasional populist revolts such as the Trump phenomenon or the Brexit vote. In a relatively short period of time, a new elite ideology has emerged that contrasts the dynamic, multicultural, libertarian city-state with the allegedly anachronistic and immoral nation-state. This ascendant worldview unites the open-borders economics and cosmopolitan, utilitarian morality of old-fashioned libertarianism with an idealization of the largest cities and their denizens.

In the 1970s and 1980s, libertarians made all of the major arguments heard from globalists since the 1990s: Favoring citizens over foreign nationals is the equivalent of racism; national borders impeding the free flow of labor and goods are both immoral and inefficient; the goal of trade and immigration policy should not be the relative security or relative wealth of particular countries, but the absolute economic well-being of all human beings.

Until the 1990s, this was an eccentric minority perspective in the U.S. and other democracies, encountered only in small-circulation libertarian journals or in the work of the occasional unworldly academic theorist of cosmopolitan ethics. But in the 2000s, as affluent whites from the professional class and their Latino, immigrant, and black allies displaced working-class whites as the base of the Democratic party, the traditional labor-liberal opposition to low-wage immigration and offshoring of industry was replaced by a new open-borders progressivism distinguishable from traditional libertarianism only by its unworkable combination of support for unrestricted immigration with a generous national welfare state.

This certainly accounts for one of the main reasons behind the Labour Party’s civil war in Britain – from the Blair era onward, Labour has been entirely captured by the open-borders progressives and increasingly turned its back on its former working class voter base. Even under the current Labour leadership election, both candidates hold open borders convictions to their core, even if only Owen Smith is stupid enough to rant about overturning the EU referendum result in public.

It also accounts for the increasing public rage (among non-progressives) about immigration in America, where the Democrats are proud and unrepentant in their support for illegal immigration while the Republicans have talked a tough talk for decades yet done nothing, precisely because the Republican political elites benefit from the current immigration status quo as much as anyone. Enter Donald Trump to an arena where nobody else is even seriously talking about the impact of mass immigration on wages and cultural cohesion, and one cannot be surprised when his crude, simplistic solutions gain political traction.

More:

The combination of open-borders “liberaltarianism” and trendy urbanist hype might lead one to wonder whether leagues of dynamic city-states should replace moribund modern nation-states. Benjamin Barber has published a book titled If Mayors Ruled the World: Dysfunctional Nations, Rising Cities. Barber is one of the founders of the Global Parliament of Mayors, which, according to his website, can help “fill the void left by nation states who [sic] are increasingly dysfunctional.” The economist Paul Romer has proposed boosting Third World development by means of semi-autonomous “charter cities,” which to his critics look remarkably like Western colonial enclaves.

Not even Barber and Romer propose actual urban independence. While cities may teach one another best practices, there is not the slightest chance that leading American cities will secede from the United States, link up with other city-states around the world, and form a new, global version of the Hanseatic League or the Delian League.

We saw the same loose talk after the EU referendum vote, with many Londoners (most of whom have no conception of what the EU really is or how it works) furious at having part of their cosmopolitan identity ripped away from them (as they see it) suggesting that London should somehow secede from the rest of the “backward” United Kingdom and become its own independent city state.

Of course this would never actually happen, but it shows just how disconnected the metropolitan elites are becoming from the country as a whole, and the sheer contempt with which they regard other regions which dared to express their patriotism and belief in self-determination by voting for Brexit. It is also misplaced arrogance of the worst sort – the lights would go out and people would begin to starve in London within days were it not for the arterial links of people and goods from the supposedly terrible and backward rural and suburban regions.

And it is this continual feeling of disrespect, I think, which does so much to drive populist insurgencies like the rise of Donald Trump, and (if I am honest) even those populist causes that I actually agree with, like Brexit. People in the industrial and commuter heartlands, as well as rural folk, are getting increasingly sick of being told that they are too backward, too intolerant, too racist, that their own priorities and concerns do not matter and that they should be led in all regards by an urban elite who don’t even seem terribly attached to the country that gives them life and liberty, and who find the slightest display of national pride or patriotism almost painfully embarrassing.

I’m fortunate. I got into a good university and managed to embark on a career which has seen me work in numerous countries across three continents. But if this had not been the case – if, like many of my peers, an international business career was either never on the cards or simply not what I wanted to do – then I would probably be quite put out by people whose interest and commitment to any one country seems transitory at best telling me what I should think about immigration, global governance and democracy.

Now living in remain-voting West Hampstead, I am surrounded by the kind of people who are aghast at the Brexit vote and who consider it a calamity brought down upon the heads by the kind of ignorant, unwashed oiks whom they would never normally speak to unless they were fixing their car or serving them a burger. I can see how it must grate with Middle England, because it grates with me.

Lind goes on to touch on this point:

What appears to be a debate among globalists and nationalists, then, is really a debate about the structure of the 21st-century nation-state. There are real dangers associated with the coalescing elite ideology of post-national globalism or, to be precise, national-elite pseudo-globalism.

One danger is groupthink resulting from the attempt by the new globalists to equate even enlightened and civic nationalism with racism. When the economist Larry Summers, nobody’s idea of a pitchfork-waving populist, tentatively called for “responsible nationalism,” he was criticized by The Economist, whose open-borders libertarianism, once eccentric, has become near-orthodoxy among the trans-Atlantic elite.

And closes with this stark warning:

The most significant threat is the possibility that the abandonment of national patriotism by many elite citizens of the nation-state for make-believe cosmopolitanism will weaken national unity, to the benefit of sub-national racism, ethnocentrism, and regionalism. The loyalties that succeed national solidarity are likely to be narrower, not broader. If history is any guide, the victims of tribalism and illiberal populism are likely to include would-be citizens of the world who despise the nation-states that make possible not only their wealth but also their security.

Those weepy europhiles mourning Britain’s imminent departure from the EU because they consider themselves “European citizens” might want to pause and think through the consequences of further undermining the nation state, which is the primary aim of their beloved project. Because enlightened, one-world government is a few centuries away yet, and whatever crops up to replace the nation state that they so eagerly undermine will likely be unpleasant, even violent.

And while it may not be purely libertarian, this blog would much rather live in a world of moderate, familiar nationalist rivalry than descend into the known horrors of ethnic or religious sectarianism. We already see the early fruits of this blinkered commitment to “multiculturalism” in self-segregated and un-policed communities here in Britain among certain immigrant populations. We don’t need to extend those delights to the entire population.

What is the solution? Michael Lind does not offer one, and this blog does not see an easy fix either. But when global elites (Davos Man and the like) and the next tier down (those with international lives and careers) have more in common with each other than with those of other socio-economic groups and communities in their own countries, it is a recipe for political alienation and the eventual fracturing of our civic life.

To avoid disaster and a true crisis of democracy, our ruling elites in the political and commercial sphere must somehow learn to be patriotic again – for if the nation state has no champions it will go on being relentlessly undermined on all fronts. But right now there is little evidence that they are remotely interested in bridging the growing chasm between their own interests and those of the people they supposedly “serve”.

This leaves the field wide open for the likes of Donald Trump and UKIP 3.0 to make inroads with voters left cold by the other options available to them. And the time may soon come when the political elites sorely regret ceding this territory.